IDEAS home Printed from https://ideas.repec.org/p/wfo/wpaper/y2012i432.html
   My bibliography  Save this paper

Centrality and Pricing in Spatially Differentiated Markets: The Case of Gasoline

Author

Listed:
  • Matthias Firgo
  • Dieter Pennerstorfer

    (WIFO)

  • Christoph Weiss

Abstract

This paper highlights the importance of "centrality" for pricing. Firms characterised by a more central position in a spatial network are more powerful in terms of having a stronger impact on their competitors' prices and on equilibrium prices. These propositions are derived from a simple theoretical model and tested empirically for the retail gasoline market in Vienna (Austria). We compute different measures of network centrality by using information on the locations of gasoline stations in the road network. Results from a spatial autoregressive model confirm that the strategic interaction in pricing between competitors is significantly related to their degree of centrality.

Suggested Citation

  • Matthias Firgo & Dieter Pennerstorfer & Christoph Weiss, 2012. "Centrality and Pricing in Spatially Differentiated Markets: The Case of Gasoline," WIFO Working Papers 432, WIFO.
    • Handle: RePEc:wfo:wpaper:y:2012:i:432
    as

    Download full text from publisher

    File URL: https://www.wifo.ac.at/wwa/pubid/45058
    File Function: abstract
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kelejian, Harry H & Prucha, Ingmar R, 1999. "A Generalized Moments Estimator for the Autoregressive Parameter in a Spatial Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(2), pages 509-533, May.
    2. Stephen Gibbons & Henry G. Overman, 2012. "Mostly Pointless Spatial Econometrics?," Journal of Regional Science, Wiley Blackwell, vol. 52(2), pages 172-191, May.
    3. Robert C. Feenstra & James A. Levinsohn, 1995. "Estimating Markups and Market Conduct with Multidimensional Product Attributes," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(1), pages 19-52.
    4. Bouckaert, Jan, 2000. "Monopolistic competition with a mail order business," Economics Letters, Elsevier, vol. 66(3), pages 303-310, March.
    5. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-659, September.
    6. Braid, Ralph M., 1989. "Retail competition along intersecting roadways," Regional Science and Urban Economics, Elsevier, vol. 19(1), pages 107-112, February.
    7. Kelejian, Harry H & Prucha, Ingmar R, 1998. "A Generalized Spatial Two-Stage Least Squares Procedure for Estimating a Spatial Autoregressive Model with Autoregressive Disturbances," The Journal of Real Estate Finance and Economics, Springer, vol. 17(1), pages 99-121, July.
    8. Dieter Pennerstorfer & Philipp Schmidt‐Dengler & Nicolas Schutz & Christoph Weiss & Biliana Yontcheva, 2020. "Information And Price Dispersion: Theory And Evidence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(2), pages 871-899, May.
    9. Pennerstorfer, Dieter & Weiss, Christoph, 2013. "Spatial clustering and market power: Evidence from the retail gasoline market," Regional Science and Urban Economics, Elsevier, vol. 43(4), pages 661-675.
    10. Jeremy A. Verlinda, 2008. "Do Rockets Rise Faster And Feathers Fall Slower In An Atmosphere Of Local Market Power? Evidence From The Retail Gasoline Market," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 581-612, September.
    11. Michael D. Noel, 2007. "Edgeworth Price Cycles: Evidence From The Toronto Retail Gasoline Market," Journal of Industrial Economics, Wiley Blackwell, vol. 55(1), pages 69-92, March.
    12. Matthew Lewis, 2008. "Price Dispersion And Competition With Differentiated Sellers," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 654-678, September.
    13. Madden Paul & Pezzino Mario, 2011. "Oligopoly on a Salop Circle with Centre," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-30, January.
    14. Maskin, Eric & Tirole, Jean, 1988. "A Theory of Dynamic Oligopoly, II: Price Competition, Kinked Demand Curves, and Edgeworth Cycles," Econometrica, Econometric Society, vol. 56(3), pages 571-599, May.
    15. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    16. Benjamin Atkinson & Andrew Eckert & Douglas S. West, 2009. "Price Matching And The Domino Effect In A Retail Gasoline Market," Economic Inquiry, Western Economic Association International, vol. 47(3), pages 568-588, July.
    17. Janet S. Netz & Beck A. Taylor, 2002. "Maximum Or Minimum Differentiation? Location Patterns Of Retail Outlets," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 162-175, February.
    18. Raphael Thomadsen, 2005. "The Effect of Ownership Structure on Prices in Geographically Differentiated Industries," RAND Journal of Economics, The RAND Corporation, vol. 36(4), pages 908-929, Winter.
    19. Gerhard Clemenz & Klaus Gugler, 2006. "Locational choice and price competition: some empirical results for the austrian retail gasoline market," Empirical Economics, Springer, vol. 31(2), pages 291-312, June.
    20. Jean-Francois Houde, 2012. "Spatial Differentiation and Vertical Mergers in Retail Markets for Gasoline," American Economic Review, American Economic Association, vol. 102(5), pages 2147-2182, August.
    21. Lewis, Matthew S., 2012. "Price leadership and coordination in retail gasoline markets with price cycles," International Journal of Industrial Organization, Elsevier, vol. 30(4), pages 342-351.
    22. Lance J. Bachmeier & James M. Griffin, 2003. "New Evidence on Asymmetric Gasoline Price Responses," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 772-776, August.
    23. Anderson, Simon P. & Goeree, Jacob K. & Ramer, Roald, 1997. "Location, Location, Location," Journal of Economic Theory, Elsevier, vol. 77(1), pages 102-127, November.
    24. Wang, Wei & Lee, Lung-fei, 2013. "Estimation of spatial panel data models with randomly missing data in the dependent variable," Regional Science and Urban Economics, Elsevier, vol. 43(3), pages 521-538.
    25. Severin Borenstein & A. Colin Cameron & Richard Gilbert, 1997. "Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(1), pages 305-339.
    26. Justine S. Hastings, 2004. "Vertical Relationships and Competition in Retail Gasoline Markets: Empirical Evidence from Contract Changes in Southern California," American Economic Review, American Economic Association, vol. 94(1), pages 317-328, March.
    27. Harry Kelejian & Ingmar Prucha, 2010. "Spatial models with spatially lagged dependent variables and incomplete data," Journal of Geographical Systems, Springer, vol. 12(3), pages 241-257, September.
    28. Dieter Pennerstorfer, 2009. "Spatial price competition in retail gasoline markets: evidence from Austria," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 43(1), pages 133-158, March.
    29. Charles F. Manski, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(3), pages 531-542.
    30. Case, Anne C, 1991. "Spatial Patterns in Household Demand," Econometrica, Econometric Society, vol. 59(4), pages 953-965, July.
    31. Joris Pinkse & Margaret E. Slade & Craig Brett, 2002. "Spatial Price Competition: A Semiparametric Approach," Econometrica, Econometric Society, vol. 70(3), pages 1111-1153, May.
    32. Matthew Lewis & Michael Noel, 2011. "The Speed of Gasoline Price Response in Markets with and without Edgeworth Cycles," The Review of Economics and Statistics, MIT Press, vol. 93(2), pages 672-682, May.
    33. Andrew Eckert, 2013. "Empirical Studies Of Gasoline Retailing: A Guide To The Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 27(1), pages 140-166, February.
    34. Barron, John M. & Umbeck, John R. & Waddell, Glen R., 2008. "Consumer and competitor reactions: Evidence from a field experiment," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 517-531, March.
    35. Ambarish Chandra & Mariano Tappata, 2011. "Consumer search and dynamic price dispersion: an application to gasoline markets," RAND Journal of Economics, RAND Corporation, vol. 42(4), pages 681-704, December.
    36. Lung-Fei Lee, 2004. "Asymptotic Distributions of Quasi-Maximum Likelihood Estimators for Spatial Autoregressive Models," Econometrica, Econometric Society, vol. 72(6), pages 1899-1925, November.
    37. Sridhar Balasubramanian, 1998. "Mail versus Mall: A Strategic Analysis of Competition between Direct Marketers and Conventional Retailers," Marketing Science, INFORMS, vol. 17(3), pages 181-195.
    38. Yongmin Chen & Michael H. Riordan, 2007. "Price and Variety in the Spokes Model," Economic Journal, Royal Economic Society, vol. 117(522), pages 897-921, July.
    39. Firgo, Matthias & Pennerstorfer, Dieter & Weiss, Christoph R., 2015. "Centrality and pricing in spatially differentiated markets: The case of gasoline," International Journal of Industrial Organization, Elsevier, vol. 40(C), pages 81-90.
    40. Wei Wang & Lung‐Fei Lee, 2013. "Estimation of spatial autoregressive models with randomly missing data in the dependent variable," Econometrics Journal, Royal Economic Society, vol. 16(1), pages 73-102, February.
    41. Eckert, Andrew, 2003. "Retail price cycles and the presence of small firms," International Journal of Industrial Organization, Elsevier, vol. 21(2), pages 151-170, February.
    42. Barron, John M. & Taylor, Beck A. & Umbeck, John R., 2004. "Number of sellers, average prices, and price dispersion," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1041-1066, November.
    43. Daniel P. McMillen, 2012. "Perspectives On Spatial Econometrics: Linear Smoothing With Structured Models," Journal of Regional Science, Wiley Blackwell, vol. 52(2), pages 192-209, May.
    44. Joris Pinkse & Margaret E. Slade, 2010. "The Future Of Spatial Econometrics," Journal of Regional Science, Wiley Blackwell, vol. 50(1), pages 103-117, February.
    45. de Martí Beltran, Joan, 2009. "Matthew O. Jackson, Social and Economic Networks , Princeton University Press (2008)," Regional Science and Urban Economics, Elsevier, vol. 39(5), pages 644-645, September.
    46. Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, vol. 79(4), pages 700-712, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Steen, Frode & Nguyen-Ones, Mai, 2018. "Measuring Market Power in Gasoline Retailing: A Market- or Station Phenomenon?," CEPR Discussion Papers 12879, C.E.P.R. Discussion Papers.
    2. Firgo, Matthias & Pennerstorfer, Dieter & Weiss, Christoph R., 2015. "Centrality and pricing in spatially differentiated markets: The case of gasoline," International Journal of Industrial Organization, Elsevier, vol. 40(C), pages 81-90.
    3. Ushchev, Philip & Zenou, Yves, 2018. "Price competition in product variety networks," Games and Economic Behavior, Elsevier, vol. 110(C), pages 226-247.
    4. Balaguer, Jacint & Ripollés, Jordi, 2021. "Does multimarket contact affect prices in the retail fuel industry? First empirical evidence," Energy Economics, Elsevier, vol. 93(C).
    5. Lau, C. Oscar, 2022. "Travel Circle: A Model of Supply Chains," MPRA Paper 115291, University Library of Munich, Germany.
    6. Pessoa, João Paulo & Rezende, Leonardo & Assunção, Juliano, 2019. "Flex cars and competition in fuel retail markets," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 145-184.
    7. Firgo, Matthias & Kügler, Agnes, 2018. "Cooperative pricing in spatially differentiated markets," Regional Science and Urban Economics, Elsevier, vol. 73(C), pages 51-67.
    8. Matthias Firgo & Dieter Pennerstorfer & Christoph R. Weiss, 2015. "Network Centrality and Market Prices. An Empirical Note," WIFO Working Papers 503, WIFO.
    9. Karpf, Andreas & Mandel, Antoine & Battiston, Stefano, 2018. "Price and network dynamics in the European carbon market," Journal of Economic Behavior & Organization, Elsevier, vol. 153(C), pages 103-122.
    10. Vásquez Cordano, Arturo Leonardo & Rojas, Pedro & Aurazo, José, 2021. "Pricing Coordination in a Spatial Context: Evidence from the Retail Vehicular Natural Gas Market of Peru," Documentos de Trabajo 006, Escuela de Postgrado GERENS.
    11. Bergantino, Angela Stefania & Capozza, Claudia & Intini, Mario, 2018. "Empirical investigation of retail gasoline prices," Working Papers 18_5, SIET Società Italiana di Economia dei Trasporti e della Logistica.
    12. LeSage, James P. & Vance, Colin & Chih, Yao-Yu, 2017. "A Bayesian heterogeneous coefficients spatial autoregressive panel data model of retail fuel duopoly pricing," Regional Science and Urban Economics, Elsevier, vol. 62(C), pages 46-55.
    13. Nikolic, Adriana & Weiss, Christoph, 2014. "Spatial interactions in location decisions: Empirical evidence from a Bayesian spatial probit model," Department of Economics Working Paper Series 177, WU Vienna University of Economics and Business.
    14. Dieter Pennerstorfer, 2014. "Price and Quality Competition in Spatial Markets. The Case of Camping Sites," WIFO Working Papers 466, WIFO.
    15. Firgo, Matthias & Pennerstorfer, Dieter & Weiss, Christoph R., 2016. "Network centrality and market prices: Empirical evidence," Economics Letters, Elsevier, vol. 139(C), pages 79-83.
    16. Xu Bai & Jinxi Wu & Yun Liu & Yihan Xu, 2020. "Research on the impact of global innovation network on 3D printing industry performance," Scientometrics, Springer;Akadémiai Kiadó, vol. 124(2), pages 1015-1051, August.
    17. Marina Di Giacomo & Wolfgang Nagl & Philipp Steinbrunner, 2022. "Trump Digs Votes - The Effect of Trump's Coal Campaign on the Presidential Ballot in 2016," CESifo Working Paper Series 9817, CESifo.
    18. Eleftheriou, Konstantinos & Polemis, Michael, 2016. "Gasoline Price Wars: Spatial Dependence Awakens," MPRA Paper 70037, University Library of Munich, Germany.
    19. Pennerstorfer, Dieter, 2017. "Can competition keep the restrooms clean? Price, quality and spatial competition," Regional Science and Urban Economics, Elsevier, vol. 64(C), pages 117-136.
    20. Chang, Kai & Zhang, Chao, 2018. "Asymmetric dependence structure between emissions allowances and wholesale diesel/gasoline prices in emerging China's emissions trading scheme pilots," Energy, Elsevier, vol. 164(C), pages 124-136.
    21. Nguyen-Ones , Mai & Steen, Frode, 2018. "Market Power in Retail Gasoline Markets," Discussion Paper Series in Economics 21/2019, Norwegian School of Economics, Department of Economics, revised 01 Jul 2019.
    22. Ushchev, Philip & Zenou, Yves, 2018. "Price competition in product variety networks," Games and Economic Behavior, Elsevier, vol. 110(C), pages 226-247.
    23. Bergantino, Angela S. & Capozza, Claudia & Intini, Mario, 2020. "Empirical investigation of retail fuel pricing: The impact of spatial interaction, competition and territorial factors," Energy Economics, Elsevier, vol. 90(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sylvain Benoît & Yannick Lucotte & Sébastien Ringuedé, 2019. "Competition and price stickiness: Evidence from the French retail gasoline market," Working Papers hal-02292332, HAL.
    2. Bernd Jost, 2012. "Price Dispersion, Search Costs and Spatial Competition: Evidence from the Austrian Retail Gasoline Market," NEURUS papers neurusp166, NEURUS - Network of European and US Regional and Urban Studies.
    3. Matthias Firgo & Agnes Kügler, 2014. "Detecting Collusion in Spatially Differentiated Markets," Department of Economics Working Papers wuwp188, Vienna University of Economics and Business, Department of Economics.
    4. Leonardo C. B. Cardoso & Carlos Frederico A. Uchôa & Williams Huamani & David R. Just & Raúl V. Gomez, 2022. "Price effects of spatial competition in retail fuel markets: the impact of a new rival nearby," Papers in Regional Science, Wiley Blackwell, vol. 101(1), pages 81-105, February.
    5. Firgo, Matthias & Kügler, Agnes, 2018. "Cooperative pricing in spatially differentiated markets," Regional Science and Urban Economics, Elsevier, vol. 73(C), pages 51-67.
    6. Jens‐Peter Loy & Dieter Pennerstorfer & Daniela Rroshi & Christoph Weiss & Biliana Yontcheva, 2022. "Consumer Information and Price Transmission: Empirical Evidence," Journal of Industrial Economics, Wiley Blackwell, vol. 70(3), pages 631-683, September.
    7. Noel, Michael D. & Qiang, Hongjie, 2019. "The role of information in retail gasoline price dispersion," Energy Economics, Elsevier, vol. 80(C), pages 173-187.
    8. Pennerstorfer, Dieter, 2017. "Can competition keep the restrooms clean? Price, quality and spatial competition," Regional Science and Urban Economics, Elsevier, vol. 64(C), pages 117-136.
    9. repec:dgr:rugsom:14027-eef is not listed on IDEAS
    10. Alderighi, Marco & Baudino, Marco, 2015. "The pricing behavior of Italian gas stations: Some evidence from the Cuneo retail fuel market," Energy Economics, Elsevier, vol. 50(C), pages 33-46.
    11. Balaguer, Jacint & Ripollés, Jordi, 2020. "Do classes of gas stations contribute differently to fuel prices? Evidence to foster effective competition in Spain," Energy Policy, Elsevier, vol. 139(C).
    12. Martin, Simon, 2020. "Market transparency and consumer search - Evidence from the German retail gasoline market," DICE Discussion Papers 350, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    13. Heijnen, Pim & Soetevent, Adriaan R., 2018. "Price competition on graphs," Journal of Economic Behavior & Organization, Elsevier, vol. 146(C), pages 161-179.
    14. Bergantino, Angela Stefania & Capozza, Claudia & Intini, Mario, 2018. "Empirical investigation of retail gasoline prices," Working Papers 18_5, SIET Società Italiana di Economia dei Trasporti e della Logistica.
    15. Dieter Pennerstorfer, 2014. "Price and Quality Competition in Spatial Markets. The Case of Camping Sites," WIFO Working Papers 466, WIFO.
    16. Pennerstorfer, Dieter & Weiss, Christoph, 2013. "Spatial clustering and market power: Evidence from the retail gasoline market," Regional Science and Urban Economics, Elsevier, vol. 43(4), pages 661-675.
    17. Palencia-González, Francisco J. & Navío-Marco, Julio & Juberías-Cáceres, Gema, 2020. "Analysis of brand influence in the rockets and feathers effect using disaggregated data," Research in International Business and Finance, Elsevier, vol. 52(C).
    18. Dieter Pennerstorfer & Philipp Schmidt‐Dengler & Nicolas Schutz & Christoph Weiss & Biliana Yontcheva, 2020. "Information And Price Dispersion: Theory And Evidence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(2), pages 871-899, May.
    19. Hosken, Daniel S. & McMillan, Robert S. & Taylor, Christopher T., 2008. "Retail gasoline pricing: What do we know?," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1425-1436, November.
    20. Felix Montag & Alina Sagimuldina & Monika Schnitzer, 2021. "Does Tax Policy Work When Consumers Have Imperfect Price Information? Theory and Evidence," CESifo Working Paper Series 9138, CESifo.
    21. Noel, Michael D., 2015. "Do Edgeworth price cycles lead to higher or lower prices?," International Journal of Industrial Organization, Elsevier, vol. 42(C), pages 81-93.

    More about this item

    Keywords

    Network centrality; Spatial differentiation; Gasoline prices;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wfo:wpaper:y:2012:i:432. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Florian Mayr (email available below). General contact details of provider: https://edirc.repec.org/data/wifooat.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.